Bond managers expect unconstrained funds to find favour in 2017

New York

FOR the world's biggest bond managers, 2017 might just be the year that unconstrained funds finally live up to the hype.

Although the bond funds - long marketed for their potential to shine in any environment - have failed to deliver consistently over the years, bond managers are convinced they're about to have something of a moment.

Donald Trump's election has reignited the prospects for inflation and growth both in the US and abroad, which will likely lead to higher interest rates and spell the end of the bond market's three-decade bull run.

And that will favour funds that can go wherever the highest returns are - without constraints on maturity, geography or even credit quality.

"This could be the rebirth of the unconstrained bond fund," said Jona-than Beinner, chief investment officer of global fixed income at Goldman Sachs Asset Management, which oversees more than US$1 trillion. "Individual investors are very exposed, maybe more than they realise, to rising ra…